The number of instances where advisory shareholder votes on DRRs have been lost appears to be increasing, and there was one case where the binding vote on remuneration policy was lost (see box "Shareholder votes on remuneration").

But an analysis of trends seems to indicate a less dramatic picture than these much publicised rebellions suggest. Practical Law's What's Market analysis of voting on DRRs from 2015 shows that the trend for opposing these resolutions is flat or down. The number of FTSE 100 companies that received a vote of between 10% and 49.9% against the DRR has remained roughly constant, with 18 in 2012, 19 in 2013, 21 in 2014 and 17 in 2015. Among FTSE 250 companies the number receiving that level of votes against has dropped, from 48 in 2012, 37 in 2013, 31 in 2014 and 31 in 2015 (these figures are based on the published data then available from 93 and 197 FTSE 100 and 250 companies respectively).

In relation to remuneration policies, the 2014 reporting season was the first time that any quoted companies needed to put remuneration policies to a binding vote, and only one FTSE 350 company failed to have its resolution passed. In 2015, the average percentage of votes cast on the binding vote in favour of remuneration policies was 92.8% (in FTSE 350 companies putting remuneration policy to a vote for the first time).

So, there is relatively a more marked trend of increased opposition on the advisory vote than there is on the binding vote. Analysis by Boudicca Proxy Consultants shows an increase in the number of FTSE 350 companies failing to receive over 70% support of votes cast for their DRRs, with the average of votes against in 2016 being 7.7%, as opposed to 6.5% in 2013.

For financial years ending before 30 September 2013, quoted companies were required to prepare a DRR for each financial year (section 420, Companies Act 2006). This report was subject to an advisory shareholders' vote. However, for financial years ending on or after 30 September 2013, the 2013 Regulations require quoted companies to prepare both:

While the advisory vote on DRRs continues to be a focus for shareholder concerns about executive pay, the binding vote on remuneration policy is potentially a much bigger stick. But that stick can be wielded typically only once every three years. Given this typical three-year cycle, 2017 will see a larger number of directors' remuneration policies being put to a binding vote than was the case in 2016.

A 2014 change to the UK Corporate Governance Code (the Code) affecting the 2016 reporting season required a company to explain when, in the board's opinion, a significant proportion of votes are cast against a resolution and the action it takes to understand the reasons behind the vote (see feature article "Corporate governance: learning lessons from the past and looking to the future"). In terms of what is meant by a "significant proportion", the Institutional Shareholder Services has seen a consensus emerging around a threshold of 20% and 30% of votes against, while noting that market practice on this issue is bound to evolve.

It seems fair to conclude that, despite what some might want to see, the 2013 Regulations have so far indicated very high levels of shareholder approvals for executive remuneration. Nonetheless shareholder interest in executive pay remains acute and the 2013 Regulations have led to greatly increased scrutiny.

Over recent years there has been an increasing focus on directors' remuneration being made subject to potential performance adjustment through forfeiture (malus) or clawback. This is widely seen as importing business protection and governance concepts, which were developed in the financial services sector following the 2009 financial crisis, into general listed companies' executive remuneration.

Both the Code and the Investment Association's (IA) Principles of Remuneration now state that directors' remuneration arrangements should include provisions that would enable the company to recover or withhold sums in certain circumstances. These developments are clearly gaining some traction. The Financial Reporting Council's 2015 report noted that:

An interim report by the IA's Executive Remuneration Working Group focused on executive remuneration arrangements in UK listed companies (the report) and stated that the current executive remuneration model can have unintended perverse consequences (www.theinvestmentassociation.org/assets/files/press/2016/20160421-execremwginterimreport.pdf).

The report recommends that remuneration structures should be simple and aligned with the interests of shareholders and other employees, a company's performance, long-term strategy, and corporate and social responsibility commitments. Remuneration structures should not be centred on LTIPs simply because this is standard market practice. The report notes that LTIPs are not suitable for all situations, and suggests that companies consider alternative approaches including:

These concepts are closely aligned with the post-financial crisis model for pay in the banking sector. The IA may adopt the working group's final recommendations into its Principles of Remuneration. This may well mean that, in the future, executive pay structures are likely to come even further into line with the financial services model. These revisions would also facilitate the move towards exposing directors' variable pay to potential malus and clawback adjustments.

Philip Bartlett, Ian Fraser and Charles Mayo are partners at Simmons & Simmons LLP.

The authors gratefully acknowledge the use of statistics from Practical Law's What's Market analysis and Boudicca Proxy Consultants. The views expressed are their own.